May 6, 2014
Executives
Daniel Schleiniger – IR Woods Staton – Chairman and CEO Sergio Alonso – COO Germán Lemonnier – CFO
Analysts
Sean John Glass [ph] – Morgan Stanley Amod Gautam – JPMorgan Bob Ford – Bank of America Merrill Lynch Josephine Shea – Investment Management Geronimo de Guzman – Morgan Stanley Lore Serra – Morgan Stanley Greg Pasi [ph] – Pala Assets
Operator
Good morning, and welcome to the Arcos Dorados’ First Quarter 2014 Earnings Call. With us today are Woods Staton, Chairman and Chief Executive Officer; Sergio Alonso, Chief Operating Officer; the Company’s Chief Financial Officer, Germán Lemonnier; and Daniel Schleiniger, Investor Relations Director.
A slide presentation accompanies today’s webcast which is also available in the investor section of the company’s website, www.arcosdorados.com. As a reminder, all participants will be in a listen-only mode.
There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator instructions) Today’s conference call is being recorded.
At this time, I would like to turn the call over to Daniel Schleiniger. Please go ahead.
Daniel Schleiniger
Thank you. Hello, everyone.
Before we proceed, I would like to make the following Safe Harbor statement. Today’s call will contain forward-looking statements and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC.
We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. In addition to reporting financial results in accordance with Generally Accepted Accounting Principles, we report certain non-GAAP financial results.
Investors are encouraged to review the reconciliation of these non-GAAP financial results as compared with GAAP results, which can be found in the press release filed with the SEC on Form 6-K. I would now like to turn the call over to our Chairman, Woods Staton.
Woods, please proceed.
Woods Staton
Thank you, Dan. Hello everyone and thank you for joining us today.
Our first quarter consolidated results indicate a solid start to the year and underscore the continued strong preference that exists for the McDonald’s brand in Latin America and the Caribbean. We achieved double digit organic revenue growth supported by a high single digit increase in comparable sales.
This expansion was driven by our Brazil and SLAD divisions where we further increased our leading market share. Importantly, these results were achieved despite economic headwinds in a soft consumption environment in several of our key markets.
This is a challenge for anyone operating in Latin America. But we benefit from having one of the most experienced management teams in the region to steer us through the cycle.
In fact, today you will hear about some of the measures that we have taken to improve our business both from the short and long-term. As discussed, during last quarter’s earnings call, given increasingly complex operating environment in Venezuela, our 2014 organic guidance excludes that country’s operations.
On this basis, our key consolidated operating results experienced double digit growth in the first quarter. Organic revenues expanded 11.6% and our cost containment initiative translated to organic adjusted EBITDA growth of 18.5%.
During the quarter, our compelling value platforms, beverage and dessert category as well as execution of strong marketing promotions in the lead up for FIFA World Cup drove revenue growth. And despite a challenging consumer environment across much of the region, overall traffic was relatively stable excluding Venezuela.
Turning to unit expansion. Our footprints in Latin America is unmatched and serves as a key differentiator for McDonald’s brand in our region.
As has historically been the case, the first quarter of the year is seasonally slow from a restaurant growth perspective with expansion typically concentrated in the second half of the year. Accordingly, we opened nine new restaurants in the first three months of the year of which six were free standing.
Thereby extending our portfolio to 2,059 restaurants as of March 31st. And we maintained our commitment to open a minimum of 250 restaurants from 2014 to 2016.
By balancing growth with our footprint with cost containment initiatives, we were able to achieve further operational efficiencies in the first quarter. A strict focus on cost allowed us to decrease our G&A expenses structure which together would increase contributions for new restaurants led to G&A leverage of approximately 90 basis points.
We believe that streamlining our business will not only help us to respond to current challenges, but will also position us to take advantage to a future reacceleration on growth across our market. Looking ahead to 2014, while economic challenges are predicted to persist, we expect organic revenue and adjusted EBITDA growth excluding Venezuela to be in line with guidance as we focus on expanding our market share, maximizing traffic and containing cost.
This approach aligns us to the five vectors of our growth blueprint, la receta para ganar or recipe to win, which is our guiding strategy and keeps us focused on the factors that generate the most value for our business. Of course, the biggest event in 2014 is the FIFA World Cup in Brazil.
In the coming months, McDonald’s is the only restaurant brand visible across the event venues during all 64 games. In addition, we’ve been running exciting programs with marketing activities including new product introductions and event-related promotions to leverage the brand sponsorship of the event.
Just yesterday, we launched the World Cup sandwiches campaign in Brazil which has historically served to increase our average checks. I truly believe the once-in-a-lifetime marketing opportunity for the McDonald’s brand in Latin America and is one of the many benefits we enjoy for being part of the global McDonald’s system.
On that note, last week we participated in McDonald’s Worldwide Operator Convention in United States. My team and I have attending the meetings for many years.
This latest convention only fortified my conviction of the strength of the global brand and the best in class leadership backing it. Having heard the success stories from our counterparts elsewhere in the world, I’m sure we will be able to apply many of those lessons for our Latin American operations.
Before I turn the call over to Sergio, I would like to reiterate that the current environment does not detract from Latin America’s long-term positive growth outlook. A young and rapidly growing consumer base in the region which favors convenience and away-from-home eating options will continue to drive sales.
And despite current economic challenges, the market remains substantially underpenetrated, affording us a lengthy runway for future growth. Sergio will now provide a more detailed discussion of our first quarter performance.
Sergio Alonso
Thank you, Woods, and hello everyone. Please turn to Slide 3.
During challenging periods for the consumer, we’ll focus on the variables that we can control which include delivering the best value through our unique value platform maintaining customer traffic in our restaurants and providing our customers with an unparalleled experience. If you turn to Slide 4, you can see how this strategy played out in our largest market, Brazil.
There, the addition of the Triple Cheeseburger sandwich GPPP value platform and the McFlurry Lingua de Gato for the dessert category combined with implementing of the Monopoly promotion and Champions Glasses campaign, helped to overcome a weak consumption environment. As a result, Brazil’s revenues grew 9.9% on an organic basis, taking to account a 19% year-over-year depreciation of the Brazilian real, revenues were down 7% in the first quarter.
Our commercial strategy is designed to simulate traffic resulting in a shift in mix which lowered the average check in the quarter. As a result, comparable sales growth was 3.4% with relatively stable traffic.
The net addition of 81 restaurants during the last 12-month period contributed $32.2 million to revenues in constant currency. Following up on Woods’ earlier comment on brand preference in the region, one of Brazil’s most respected business publication, Epoca Negocios, published a circular [ph] within the last couple of weeks where McDonald’s was voted the most admired retail brand in Brazil.
As you can see on Slide 5, revenues in the NOLAD division decreased by 5.4% or 1.8% on an organic basis year-over-year. Systemwide comparable sales were 5.1%, Sales growth was impacted by the weak consumer environment in the division and the shift in the important Easter holiday, from the first quarter last year to the second quarter this year, resulting in lower traffic in the first quarter.
We’ll continue to focus on our turnaround strategy Mexico which has been hampered by some consumption in the country. And we are however reached with the performance of our Panama operations.
Then the addition of six restaurants during the last 12-month period contributed $4 million to revenues in constant currency. Please turn to Slide 6.
SLAD continued to be a strong contributor to consolidate the results in the quarter. The region’s organic revenue increased by 26% year-over-year.
Taking into consideration currency movement, revenues were down 8.8%. Systemwide comparable sales increased 23.5% in the quarter, supported by average check growth and stable traffic.
Success with marketing initiatives included the Bone in Chicken in Peru, while in Argentina, we added the FIFA World Cup promotion on the Combo de la Copa which is the Angus Criollo and McWrap Criollo as well as the McFlurry Toblerone to the dessert category. The net addition of the 13 restaurants during the last 12-month period contributed $9.4 million to revenues in constant currency.
Now, going to Slide 7 excluding Venezuela, the Caribbean division’s first quarter revenues declined about 2.5% related to the depreciation of the Columbian peso, but were flat year-over-year on an organic basis. Comparable sales in the Caribbean division again excluding Venezuela decreased by 5.2%.
Although traffic was stable in the quarter, this was primarily offset by a shift in mix which lowered the average check in the division. And the net addition of 10 restaurants during the last 12-month period contributed $4.7 million to revenues in constant currency.
Despite ongoing challenging conditions in Venezuela including social and wealth, changes in the exchange rate regime and price controls, we maintained our leaded market share in the country. This was achieved by strong marketing promotions including the introduction of the QPC Melt & McChicken in the country to incorporate as many local ingredients as possible together with the vision of the McFlurry Pralines & Cream to the dessert category in Puerto Rico.
In summary, consolidate d revenues excluding Venezuela declined 6.8% but were up 11.6% on an organic basis versus the year-ago quarter. Please turn to Slide 8.
As the biggest QSR company in Latin America, our footprint is unrivaled. During the last 12 months, we extended our portfolio with the opening of 125 restaurants.
We believe that a balanced restaurant portfolio is the best long-term strategy to take advantage of the growth opportunity in Latin America and in the Caribbean. This is why just under half of our current portfolio is made up of freestanding restaurants which provides multiple revenue, generate opportunities and significantly more branding than a simple point of sale.
At the end of March, our restaurant based with 2,069 restaurants and during the past 12 months, we added 329 dessert centers and 15 McCafés bringing the total of 2,310 and 3,043 respectively. Our 2014 opening pipeline is sound.
More than 80% of the real estate site have been secure or under construction. Of which 60% are also expected to be freestanding restaurants.
I would like to regulate that the performance of our new unit remains strong. The restaurants we opened during 2010 to 2012 achieved our internal target for our internal investment in excess of 20% on average for the [indiscernible] I would now hand you over to Germán who will discuss our adjusted EBITDA [generation and other financial matrix.
Germán.
Germán Lemonnier
Thank you. Please turn to Slide 9.
The first quarter, the revolution of the Venezuela [indiscernible] more than offset adjusted EBITDA generated elsewhere in the region resulting in 26 from 7% year-over-year decline. Here in Venezuela, adjusted EBITDA performed well increasing 18.5% in organic terms and remains stable as reported.
We also delivered a 15 basis points increase in adjusted EBITDA margin excluding Venezuela over the prior year driven by our NOLAD and the SLAD division. As we discussed within our fourth quarter earnings call, we shall form an internal task force to identify further cost reduction opportunity.
During the first quarter, we achieved a reduction in G&A as a percentage of revenue of approximately 90 basis points year-over-year. There were three main drivers for G&A leverage.
One, we began the year with a lower G&A base from the headcount reduction that we implemented towards the end of 2013. We also paid lower variable compensation across all division and at the corporate level.
And third, we benefit from the natural hedge of maintaining our corporate headquarters in Argentina. Finally, we take further step to achieving important ongoing productions to our generic and other cost structures.
Moving to our divisional results, there are a few divisions adjusted EBITDA decrease by 17.3% on a reported basis and decreased 5.9% on organic basis year-over-year. The decline resulted primarily from food and paper as well as payroll cost pressures.
Food and paper was impacted primarily by higher bid cost [indiscernible] than we have projected. [Indiscernible] it is our annual plan which we said we’ll offset some of this pressure over the course of 2014.
Payroll pressure were derived monthly from the fixed schedule requirement in Brazilian market. By doing our management of the fixed schedule and [indiscernible] pressure to reduce over time.
At the end of the quarter we took advantage of the decision of the [indiscernible] and complete our 2014 [indiscernible] on food and paper. We are now 100% hedged on imported goods and we have lowered our blended exchange rates for the full year.
In NOLAD, adjusted EBITDA increased by 18.9% or 22.3% on organic base. Margin expanded by 124 basis points to 6.1% as food and paper [indiscernible] is more than enough to put pressure in payroll, occupancy, other operating expense and G&A.
Adjusted EBITDA in the SLAD increased by 9.1% year-over-year or 55% on organic base. The margin expanded 176 basis points to 10.8% primarily due to the lower payroll cost and G&A.
Before I discuss the Caribbean division results, I would like to update on our Venezuela operations. As part of the recent development on Venezuela exchange chain control systems [indiscernible] reviews for the measurement of Venezuela operation financial statement.
We have concluded that SICAD exchange rate is the applicable rate for our Venezuela business effective as of March 1, 2014. It was March 31, 2014 the SICAD exchange rate was 10.7 VEF per dollar.
And the resulting average rate for the quarter was 7.88 VEF per dollar. In the three month period ended March 31, 2014, we recognized the foreign currency exchange loss of $19.7 million after as a result of exchange rate change.
The company’s operating results included $7.6 million write down related to certain inventories due to the impact of the currency exchange rate change on the net recoverable value, and $6 million loss related to lower margin due to the impact of inventories measured at the historical exchange rate. At March 31, 2014 the Venezuela net monetary asset position was $25.8 million including $2 million of cash and cash and equivalent.
Please refer to the company’s form 6-K filed with the SEC today for more information on the Venezuela operation. We have a strong Q4 and [indiscernible] Q3 in Venezuela and despite recent challenges, we maintained our commitment to the country where we have a leading brand position.
We’re actively working to reduce our cost and currency exposure through local sourcing. As we mentioned that with the right guidance we expect that the Venezuela business will not require operating cash support in 2014.
The Caribbean division excluding Venezuela reported 12.6 % reduction of adjusted EBITDA or 16% decline on organic basis. Although, recent traffic was relatively stable, the division [indiscernible] declined primarily as a result of the shift in mix, which led to a lower average check.
Turning to Slide 10, first quarter non-operating result reflect an increase in net interest extent of increasing foreign currency exchange level [ph]. Income tax for the quarter totaled $3.7 million compared to $5.9 million in the year-ago period.
On the full year basis, we maintained our guidance and effective tax rate within 35% to 37% excluding Venezuela. The company reported a net loss of $20.6 million compared to a loss of $6.6 million in the same period 2013 mainly due to the lower operating income.
Basic net loss per share was $0.10 in the first quarter 2014 compared to a loss of $0.3 a year-ago period [indiscernible] indicators. Cash and cash equivalents were $126.4 million not much for the first.
Total financial debt was $848.4 million and our net debt was $322 million and net debt adjusted EBITDA ratio was 2.2 times. But consumers trend some of the largest market but then a challenge in terms of generating the [indiscernible] they opened in 2014.
However we are confident on the strength of our bond, the quality of our products, and the company marketing currently drives our front line. As I mentioned, [indiscernible] making step to maintain or go over the value [indiscernible].
I will now hand the call back to Woods Staton [ph].
Woods Staton
Thanks Edwin. All the political and economic challenges will continue to impact cooperation in the near term.
The underline driver to our business is strong. And I am confident that our team is the best position in the region to successfully manage to this economic cycle.
During the past few years we have taken numerous steps to reduce our volatility and enhance our long-term profitability. The proactive use of current hedges [ph] has successfully buffered operating a goal [ph] the restructuring of debt [ph] has strengthened our balance sheet and the structure of operations while the corporate headquarter will [indiscernible] value and [indiscernible] continued to provide a natural hedge [ph] for currency and inflationary [ph] pressure.
The cost savings that we achieved thus far are the initial results with strategic comprehensive review of our organizational structure. In fact, beginning with the reduction has implemented at the end of 2013, we are targeting an annualize reduction in G&A [ph] of over $20 million.
I want to close by reiterating my confidence in ARCO grows bright future. More than 4.3 million customers everyday across countries and territories in Latin America and the Caribbean is a strong foundation which we will grow.
It’s in [ph] middle class, changing [indiscernible] to demographics, and uncapped demand for apart, for driving, for long term expansion of our draftable [ph] market. As a leader in the QFR [ph] segment we will benefit greatly from these trends over the years to come.
We have a strong relationship with our partner McDonalds and they remain very supportive of our operations. Reaffirming my continued belief and that goes that our long term prospects and [indiscernible] the opportunity to purchase an additional $250,000 shares in the company.
Thank you for your attention. I would now like to open the call of the questions.
Operator
If you’ll ask a question you may press star then 1 on your touch tone phone. If you’re using a speaker phone please pick a handset before pressing the keys.
If you withdraw your question please press star then 2. Our first question comes from Sean John Glass [ph] at Morgan Stanley.
Sean John Glass [ph] – Morgan Stanley
Thanks very much. Just – first can you just – can you just really [ph] what is the guidance that you are articulating today versus prior, what is change, what is staying the same.
I know you made reference to it couple of times in your remarks but didn’t say you have imprinted [ph] so I just want to understand what you’re saying you can still do this year and what is no longer obtainable given the issues we’ve discussed.
Woods Staton
Yeah. Hi, John.
We passed the – your question over the Edwin.
Germán Lemonnier
Hi, John how are you?
Sean John Glass [ph] – Morgan Stanley
Good.
Germán Lemonnier
Basically, you don’t have any change in the guidance to [indiscernible] very growth [ph] guidance for 2014 and between 13% to 16% adjusted the growth with 15%, 30% always in a [indiscernible] and excluding Venezuela. The definitive task rate that I mentioned in my part is 25% between 39% [ph] of them and we basically don’t have any in this change.
I bet you got – of any growth excluding Venezuela is 11.6 we did that with ultimately misleading concern [ph] that’s the [indiscernible] in our income statements. We have an organic that’s tested the grown the quarter of 13.5% this is – this is above our [indiscernible] guidance of 15%, 13%.
So we are not changing our guidance at all.
Sean John Glass [ph] – Morgan Stanley
Okay. That’s very helpful.
And then, can you just talk in Brazil, you talked about beef [ph] inflation being one of the biggest contributors and also some of the mandatory scheduling and some adjustments. So can you talk – I think you said this but I’m – I don’t – I’m afraid they didn’t catch all of it.
Have you now hedge some beefs [ph] so that there’s no longer an exposure of quantified it and can you also talk about what you’re doing on those mandatory fixed schedules to alleviate some labor the pressure.
Woods Staton
Yeah. Let me pass you to German for the – for the putting on the beef [ph] and our just only increase in pricing and how it can affect the full year.
And then, on the scheduling requirements and the new law in Brazil I’ll pass you to Sergio. German.
Germán Lemonnier
Okay. Hi, John again.
Basically, we mentioned that the [indiscernible] market going back by already – by my rights food and [ph] paper and payroll. I will pick the food and paper part.
The food and [ph] paper was increasing driven by increase and beef cause to make – base in our full years in the [indiscernible] our trend from the protection but happened more abruptly than we expected originally. In terms of [indiscernible] is that are [indiscernible] that we searched the imported food and paper part of the [indiscernible].
The beef is [indiscernible] so the shape – 100% shape is they feed [ph] up imported product of our in goods [ph]. But we don’t take any to meet again more beef and the rest of the year.
Sergio [ph].
Sergio Alonso
Yeah. Sure.
Hi, John. And regarding the fix schedule situation what we let you know that in the last calls we finished [indiscernible] all across the country as the end of last year and the major change is that we now only have the chance to adjust the number of hours on monthly basis when compared to a weekly basis that we have before.
Obviously that creates a different situation when the volumes and the sales are not dynamic as they were in the past that crates an additional situation that we need to consider. Now, having said that, we still have obviously a chance to adjust the schedules mostly letting the head – natural health can turn over to multiply the number of – the working hours that we scheduled at different restaurants.
Even though this, you know, creates some of additional pressure on our – on our payroll and the PML [ph] we believe that we will be able to compensate in the months to come this situation with the number of hours that we have under the new schedules system.
Woods Staton
Yeah. And John, just around of your question for the full year we expect margins will be approximately flat with some, you know, food and paper [ph] where they have caused pressures of beef as I said.
But they’re going to be all set in other non-productive cause as well as G&A the [indiscernible] sales.
Sean John Glass [ph] – Morgan Stanley
Okay. Thank you very much.
Operator
Our next question comes from Amod Gautam at JPMorgan.
Amod Gautam – JPMorgan
Hi, good morning. I’m filling in for John.
You mentioned traffic in Brazil was stable year-over-year but could you just help us, you know, in the quarter and with the World Cup gearing up here so. I think in the past you mentioned maybe it’s possible that there could some exhilaration in the couple of months leading up to the World Cup.
Is that still kind of the impression I hope that you have for the next few months?
Woods Staton
Yeah. How are you?
The fourth quarter comes continue to be affected by, you know, unstable macroeconomic environment especially in the whole QSR [ph] arena. We’ve been focusing on variables that we can control which includes the [indiscernible] invest value, so, you know, to our value platform and trying to maintain customer traffic as much as we can.
With that said, you know, keep in mind that you’re in the first half of 2014 we’re facing tougher comes because of last year the performance. So this year we have 3.4% increases but that comes on top of last year is 9.1% increase for the quarter.
So that’s a tough – that’s been tough for us. And we’re running promotional campaign they have a short-term impact from part mix [ph] but, you know, traffic is maintaining itself stable and we’re comfortable with that.
Sergio, would you like to have some –
Sergio Alonso
Yeah. Maybe give some color [indiscernible] on the what we need in terms of the calendar for Q1 we had the – of course as you mentioned before, I mean, the very active 4W [ph] platform that is obviously targeting, retained traffic as well we do [ph] in more complicated and less dynamic economy to all which will focus and retain traffic because we believe that is the best way to sustain value for the future.
But apart from the [indiscernible] monitor campaign we have a lot of, you know, monopoly campaign that we have anticipate this year compared to the next year just to open enough space to launch the PIFA [ph] campaign that you also mentioned and obviously we had a very, very comprehensive dessert and launching and a new product with a new McFlurry line. So we have a number of initiatives all of them targeting, retaining traffic as we did.
Of course, most of these initiatives remarkably the people just vary probability category. They made up to a changing product mix which also made up to a change in [indiscernible] obviously.
Because people they have less spend in money so they take the most affordable options in our menu.
Amod Gautam – JPMorgan
Okay. and then, just one more – as you think about the increase in complexity of the operating environment in Venezuela is there any possibility that least began considering downsizing the store base to reduce exposure and what kind of flexibility might you in under the MFA [ph] with McDonalds to do something like that equals or even the market.
Woods Staton
Yeah. We’ve been to Venezuela just a few weeks ago.
I was there just a few weeks ago. And we are – we are trying to get that operation as lean and as possible.
And, you know, as we mentioned before we’re also locally – we are forcing the local to all of over ingredients as much as we can so making a lot of progress there. There are laws in Venezuela that do not allow you to fire people.
So, you know, you cannot just close the store and you can’t just close it. But the company [indiscernible] will walk away.
So that’s one problem. Then there’s also that problem that if you don’t have that real estate under use it might be expropriated and as in the case was we’ve brought other people in other companies.
So we have no plans on shutting down restaurants unless obviously as in any other country there – that will stayed [indiscernible] but, you know, luckily that’s not the case in Venezuela. And, you know, quite honestly I think we’re mildly more optimistic sitting here today about Venezuela and maybe, you know, some months ago because of this new SICAD tool and some of the measure that they’re taking which are more, you know, economically coming sensible.
And, you know, partners, you know, we get support from [indiscernible] corporation. We’ve got better positions in our peers [ph] in the market.
And the most important thing is that we do not – we’re not going to inject any cash in that country and its – and it’s in terminally sustainable that this – German mentioned in his portion.
Operator
Before we go on to the next question I would like to ask the party please limit themselves to one question at a time. And our next question Vinicius Saraiva [ph] Bank of America Merrill Lynch.
Bob Ford – Bank of America Merrill Lynch
Hi, it’s actually Bob Ford. And other question with respect to the foreign exchange lost that you include in the quarter on inventory.
It was a little bit ambiguous to me, because typically when you’re holding to dollars and [indiscernible] inventory there’s often a gain or you preserve value during encourage effects [ph] weakness. But here it changes that it may be tied to make some of price controls.
But if you could elaborate on the nature of the effects losses because you break in two buckets [ph] that will be very helpful please.
Woods Staton
Hi, Bob. Yeah.
Let me get to you German.
Germán Lemonnier
Yes. It’s a good –everybody is the same page, basically we have create the system, you know, [indiscernible], SICAD and SICAD II.
We choose to get one to translate and because of this we have two kinds of things [ph] but normal impact that is basically the impact that [indiscernible] on monetary partition that this was %19.2 million. The inventory right down that’s probably are referred to even takes points 7.6 million is related basically growth.
We have inventory at that belongs franchisees and we cannot increase the price of this inventories because of price control and that’s why we need to write down the total values with the inventory. So you’re it’s because of the – because of the price control and not because of the company [ph].
Operator
The next question comes from Josephine Shea for Investment Management.
Josephine Shea – Investment Management
hi, good morning. Could you possibly talk about the capital expenditure which was 20 million this quarter and could you remind what the guidance was for the year and will you bring this down if operating cash continues to be negative obviously your debt is going up and your cash going down.
So your leverage is increasing could you come on both on capital expenditure and how that works for the cash flow statement going forward in relation to that levels. Thanks.
Woods Staton
Yes. Hi.
Let me pass you to German so he can answer the question.
Germán Lemonnier
Yes. Yes.
In our 2014 guidance basically we keep $200 million for capital [ph] purposes [indiscernible] and the part mentioned that we are in track on this guidance of how we’ve opened to remind this. So we don’t expect change in the – in the – in the capital [ph] deployment in the company and we are on track.
And base on the debt we always say that we are comfortable we meant that never fall on two times in the DA [ph] – attract the DDA [ph]. And we don’t expect that in [indiscernible] increasing the [indiscernible] today.
We are ensuring as much that we are [indiscernible] two times around two. And we did that – we can maintain this ratio [indiscernible] that we need did mitigations and continued our original caps exploring [ph].
Operator
Our next question comes from Geronimo de Guzman [ph] at Morgan Stanley.
Geronimo de Guzman – Morgan Stanley
Hi, good morning. My question is also in Venezuela we noticed that the local currency was there decelerated quite a bit from too close to a little above 30% versus 50% before.
So I just wanted to understand what droves the declaration and that top line growth. And what that means for your growth and your margin going forward.
And then, I guess related to that I just wanted to know you mentioned the SICAD II system just wanted to know if you have been able to access this system at all. And if that’s the case whether there’s a chance that you might moved to that system for translation purposes.
Woods Staton
Yeah. Hello, Geronimo.
I’ll start with the last part first in SICAD II. And we haven’t been able to secure some money from SICAD II but, you know, it’s very complicated.
They’re not many, many funds available. We’ve been able to get some funds that we not – but not with the anything that –
Germán Lemonnier
Presentable.
Woods Staton
Yeah. Presentable, I mean, nothing substantial it’s $300,000.
But yet, it’s open for business. I think an important thing that’s happened also in a [indiscernible] is it – it’s taken away this law it makes it illegal for you to buy dollars.
And that’s taken pressure off a lot of the black market whatever, you know, blue market or parallel market is there. So the traffic has decreased because of increasing prices.
We have to maintain our margins. Don’t forget that we’ve been buying things like French fries and in our part, they’re imported which is – that’s the only thing that’s imported, but also the local products are very expensive.
So to maintain margins, we’ve had to increase prices. That’s brought some of our volume down.
And then also, recently we’ve had some unrest in the country. And what’s happened is that doesn’t allow customers to get to your store and/or allow your crew to get to the stores.
You can’t open. By the way, one of the focuses of the student activity is close to several of our restaurants.
So it’s a challenging situation. But we’re very active in the market.
We’ve launched Cheddar Bacon Onion. The McFlurry Tres Leches.
We had also McFlurry Flaquito Chocolate. So it’s a dynamic situation.
But the brand is very strong. And I was just here, as I said, two weeks ago, and it’s very nice to see that the stores, restaurants are doing extremely well.
It’s just an absolute – thrilled to see how well the stores are being run and how good the crew is and what a great McDonald’s experience they’ve given all these negatives going on now.
Operator
(Operator instructions) We do have a few more questions. Would you like to take them?
Woods Staton
Yes, absolutely.
Operator
Okay. Our next question comes from Lore Serra at Morgan Stanley.
Lore Serra – Morgan Stanley
Yes. Thanks for taking the question.
I just wanted to follow up quickly to Han Well’s [ph] question. Germán, can you just explain to us, like just on the SICAD II, at some point, do you think about using SICAD II as an exchange rate for financial reporting purposes?
And as you advance discussions with McDonald’s, we saw you had royalty relief that was important for the profitability of the operations this quarter. Is there any kind of sort of now that you’re seeing a little bit more rules of the road in Venezuela, is there any more of a permanent solution that you’re working on with McDonald’s to kind of see through the next year or two?
Germán Lemonnier
Hi, Lore, how are you? It’s Germán.
Lore Serra – Morgan Stanley
Hi.
Germán Lemonnier
Flipping to the royalty, there’s a [indiscernible] that we received [indiscernible] in the first quarter from McDonald’s 4.7 million basically in line with what we mentioned last call, 1.5 million approximately per month. Currently, we are [indiscernible] monthly basis because of the [indiscernible] and we are working in April with [indiscernible] close to 50.
So that’s helped a lot in the business in April. And we continue [indiscernible] McDonald’s because with these are our partners and are supporting us in the business.
And so we are not expecting any big change in terms of support from McDonald’s. In terms of [indiscernible] where we checked all the companies and obviously, there are a lot of [indiscernible] exchange rate.
We are monitoring the situation carefully every month, because obviously there are two markets there [indiscernible] and SICAD II. As mentioned, we can assess [indiscernible] $300,000.
We’ve got more access to SICAD I, more than $2 million for [indiscernible] month. So we evaluated it every month.
And [indiscernible] and I cannot guarantee to stay in SICAD I, but today SICAD I is the [indiscernible] that we’ll need to use. And we are open to changes if the market change or the other companies who have a big change in this policy [ph].
But today, it’s SICAD I.
Operator
Our next question comes from Greg Pasi [ph] at Pala Assets.
Greg Pasi [ph] – Pala Assets
Hi, thanks for taking my call. Just a question about the EBITDA margin.
You said margins would be flat. Is that what I understood correctly?
And just regarding dividends, what would be the payout ratio as to the 2013 and ‘14? Do you have any indication for that?
Thanks.
Male
Yes. First part is margins.
We said that the margins would be flat or quite negative at the company excluding Venezuela. So that’s correct.
And the second part, [indiscernible].
Woods Staton
Yes, thank you. As far as dividend, we’re paying dividends that we’ve already declared our dividends for this year.
We don’t see any reason to change that. And obviously when we get into our planning cycle for next year, we’ll look at that there’s no change in necessary right now.
So anyway, thank you. Thank you all for your attention.
And thank you for joining us today. We approach our business with a very strong focus on the long-term opportunities from McDonald’s around Latin America.
And as long as we continue to deliver an unsurpassed money experience backed by innovative marketing programs, I’m confident we’ll enhance long-term shareholder value. And I look forward to updating you on our second quarter before [indiscernible].
Thank you all very much, and have a good day.
Operator
The conference is now concluded. Thank you for attending today’s presentation.
You may now disconnect.